Diversification
Whether you want to invest specifically in shares or across a broad range of asset classes, managed investments can deliver a benefit which can be very hard to achieve as an individual investor - diversification. Diversification reduces your risk, and improves the consistency of your returns. As we've seen in Choosing the right investment, each asset class has a different level of risk and return associated with it.
One way of reducing
risk over short periods of time is to spread your investment over
a number of different asset classes - commonly referred to as diversification.
Why does this reduce risk? Because different investment types tend
to experience good performance at different times. By not having
all your money in one type of investment, the high returns you receive
from one investment can, to an extent, offset any poor performance
that might be occurring in another market.
Managed investments can be separated into two basic types - 'balanced' funds and 'sector' funds.
Balanced
funds - diversifying across asset classes
Sector funds - diversifying
within asset classes